Recently, Manhattan District Attorney Alvin Bragg publicly urged New York State legislators to classify unlicensed crypto operations as criminal offenses and to strengthen enforcement tools to combat crypto-related crime. This statement is not an isolated policy discussion; it directly targets one of the most pressing realities in today’s regulatory landscape—crypto asset flows have become a core infrastructure for the underground economy.
According to Bragg, a criminal economy valued at approximately $51 billion is actively exploiting regulatory gaps, using crypto assets to launder proceeds from firearms trafficking, drug crimes, and fraud. He specifically highlighted unlicensed crypto ATMs as a major concern. These machines can convert cash into digital assets at fees as high as 20%, effectively serving as fast, opaque on-ramps for illicit funds. Operating outside licensing, auditing, and continuous supervision, such services often leave law enforcement with little recourse beyond post-incident prosecution.
A Shift in Regulatory Logic
What stands out in Bragg’s proposal is that the core objective is not merely stricter licensing requirements or expanded KYC obligations. Instead, it is about equipping regulators and prosecutors with earlier and more effective intervention capabilities. This signals a broader regulatory shift—from formal compliance toward substantive risk control.
In practice, many unlicensed or gray-area crypto businesses do not operate in total anonymity. They frequently rely on KYC-verified accounts, third-party service providers, or intermediary wallets. As a result, identity checks alone are no longer sufficient to answer critical questions:
- Why are funds being rapidly converted from cash into stablecoins?
- Why do multiple addresses exhibit highly synchronized splitting and aggregation patterns?
- Are these transactions driven by legitimate commercial needs, or do they reflect classic money-laundering typologies?
Increasingly, regulators are seeking answers not from identity data, but from transaction behavior itself.
KYT: Filling the Most Critical Regulatory Gap
Against this backdrop, the importance of KYT (Know Your Transaction) is becoming unmistakably clear. Unlike KYC, which focuses on who the user is, KYT continuously answers three fundamental questions: Where do the funds come from, how do they move, and where do they ultimately go?
In response to tightening regulatory expectations, our KYT product is designed around the principle of behavioral transparency, enabling compliance teams and crypto businesses to identify real risk before enforcement actions begin:
- Abnormal Fund Flow Pattern Detection Automatically identifies high-frequency asset swaps, rapid cross-chain transfers, and concentrated stablecoin outflows—patterns commonly associated with money laundering, particularly in crypto ATM and cash-based on-ramp scenarios.
- Business-Level Risk Profiling Moves beyond single-address analysis to evaluate entire transaction structures, determining whether a business exhibits systematic, repeatable high-risk behavioral patterns.
- On-Chain Evidence Preservation and Explainable Analysis Transforms complex transaction paths into auditable, traceable risk evidence that supports internal compliance reviews and regulatory inquiries.
- Proactive Alerts Instead of Reactive Remediation Triggers early warnings as suspicious behavior begins to form, enabling organizations to adjust operations and controls before regulatory or criminal scrutiny escalates.
Conclusion
If this proposal is enacted, New York would become the 19th U.S. state to criminalize unlicensed crypto operations. The broader message is clear: regulatory tolerance is shrinking rapidly, and “not seeing on-chain behavior” will no longer be an acceptable excuse.
In the next phase of crypto regulation, the real risk lies not in being asked to comply, but in lacking the ability to understand and manage on-chain transaction behavior. KYT is the critical bridge between regulatory expectations and the realities of blockchain activity. Those who build this capability early will be best positioned to avoid falling into the path of enforcement and criminal liability as regulatory scrutiny continues to intensify.